Annual Report - Pricol - 2009-2010

PRICOL LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Your Directors have pleasure in presenting the Thirty Eighth Annual Report
and audited accounts for the financial year ended 31st March 2010.



FINANCIAL RESULTS

The summarised financial results are:

Rs. Million

2009-10 2008-09

Net Sales & Services

- Domestic 6,338.064 4,765.512

- Export 1,085.860 1,375.254

Total 7,423.924 6,140.766

Profit Before Interest
and Depreciation 942.809 377.613

Less: Interest &
Finance charges 316.452 395.505

Depreciation 351.783 364.911

Profit/(Loss) Before Tax 274.574 (382.803)

Less: Provision for

Current Taxation 46.771 -

Fringe Benefit Tax - 6.600

Deferred Tax (Asset) (27.000) (67.000)

Add: Tax provision for earlier
years no longer required
written back - 22.156

Profit/(Loss) After Tax 254.803 (300.247)

Add: Balance brought forward (115.612) 184.635

Amount available for
appropriation 139.191 (115.612)

DIVIDEND

Your Directors recommend a dividend of 40% on the paid-up equity share
capital of the Company for the year ended 31st March 2010.

APPROPRIATION

Rs. Million

2009-10 2008-09
Dividend Re.0.40 per share of
Re.1.00 face value 36.000 -

(Previous year - Nil)

Tax on Dividend @ 16.61% 5.979 -

General Reserve 26.000 -

Surplus/(Deficit) to be
carried over 71.212 (115.612)

Total 139.191 (115.612)

INDUSTRY STRUCTURE AND DEVELOPMENTS

Riding on the back of economic growth, easy availability of finance, fiscal
stimulus measures and launch of new models, the domestic auto industry
recorded a growth of 26% in 2009-10.

The performance as per Society of Indian Automobile Manufacturers (SIAM)
is:

Vehicles Sold Growth
Category 2008-09 2009-10 2009-10
In numbers

Passenger Car 1,552,010 1,968,497 26.84

Utility Vehicle 228,655 275,556 20.51

Multi Purpose Vehicle 107,767 151,869 40.92
Medium & Heavy

Commercial Vehicle 200,314 265,481 32.53

Light Commercial
Vehicle 226,505 310,921 37.27

Scooters/Scooterettee 1,173,823 1,492,632 27.16

Motor cycles 6,802,971 8,444,243 24.13

Mopeds 438,514 571,489 30.32

Three Wheelers 497,793 613,650 23.27

Total 11,228,352 14,094,338 25.52

Barring unforeseen circumstances, the vehicle industry is expected to grow
10% to 15% during next financial year.

OPERATIONS

During 2009-10, increase of sales to domestic vehicle manufacturers and
sales of fleet management products, sintered components & railway products
increased our company's domestic sales from Rs.4,766 million to Rs.6,338
million, a growth of 33%.

Due to the continuation of recession in the countries where we export, our
export turnover decreased from Rs.1,375 million to Rs.1,086 million.
Overall, the total sales increased to Rs.7,424 million from Rs.6,141
million, a growth of 21%.

In 2009-10, due to effective cost control measures carried out by the
company, the profit before interest and depreciation has increased from
Rs.378 million to Rs.943 million, and Profit After Tax has gone up from a
loss of Rs.300 million to a profit of Rs.255 million.

Due to the Indian Rupee having strengthened substantially against Euro and
to certain extent against US Dollar, the export realisation will be
affected. The financial crisis in Europe, our Company's largest export
market is also a worrisome factor.

The long drawn labour strike in the year 2007 resulted in cancellation of
product development for the new models to be released in this financial
year. Therefore, the phasing of old models for which our Company was
supplying products and introduction of new models where our Company will
not be supplying similar products, there will hardly be any growth in the
domestic market.

Therefore, the company's overall sales for 2010-11 is expected to go up
only marginally by 3%.

But, the Company will continue its efforts to further reduce the
operational costs to improve the profits.

During February 2010, for administrative and operational convenience, the
manufacturing operations of Plant IV, Coimbatore were moved to other plants
in Coimbatore.

SUBSIDIARY COMPANIES

PT Pricol Surya, Indonesia

The wholly owned subsidiary manufacturing instruments for two wheelers,
commenced operations from April 2007. The major customer Suzuki Motorcycles
lost substantial market share in ASEAN countries. Sale to Yamaha Motor
Cycles planned to start in December 2009 was delayed due to postponement of
model release by Yamaha.

Consequently for the financial year 2009-10, sales reduced to Rs.95 million
(Rs.122 million in 2008-09), Inspite of decreased sales, the profit after
tax was Rs.16 million (against a loss of Rs.38 million) mainly due to forex
fluctuation gain of Rs.51 million.

In the financial year 2010-11, sale to both Yamaha Motor Cycles and Astra
Honda Motor will commence. Sales to Yamaha Motor Cycles is expected to
commence from July 2010 and to Astra Honda Motor from February 2011. This
would help the Company to make operational profits from the last quarter of
the financial year 2010-11.

English Tools and Castings Limited

The wholly owned subsidiary manufactures aluminium pressure die casting
components, primarily catering to commercial vehicle sector (800!0) and
industrial sector (200l0).

In the latter half of the financial year 2009-10, new customers like TVS
Motors for three wheeler components and Greaves Cotton for transmission
components were added. But the power crisis in Tamilnadu hampered the
production and also increased the cost of power substantially due to
running of gensets. Due to the above, the company was able to achieve only
a turnover of Rs.127 million and incurred a loss of Rs.35 million.

The outlook for the Company is brighter for the financial year 2010-11
since at present, the Company is having order book of Rs,25 million per
month, due to the increased requirements indicated by the customers now.

To help the subsidiary company augment their financial needs, so as to
enable growth and come back to profitability, Pricol Limited invested
Rs.69.500 million towards equity shares of English Tools & Castings
Limited.

Integral Investments Limited

The wholly owned subsidiary during the financial year 2009-10 received a
dividend of Rs.0.420 million. Due to adverse stock market condition, it
ended with a loss of Rs,0.285 million.

OUTLOOK

The vehicle industry expects the growth in automobile sector to continue,
fuelled by rising disposable incomes, Global automakers are expected to
continue their investment into India, growing auto manufacturing first and
later auto engineering and R & D Services.

The outlook for the auto ancillary industry appears healthy. The demand
from the export markets however remains weak because of the conditions
prevailing in the target markets.

OPPORTUNITIES, CHALLENGES, RISKS & CONCERNS

The entry of global OEMs making India as their manufacturing base, has
given a big boost to the industry. Export of automobiles has also emerged
as a key component of growth. India continues to be an attractive
destination for automobile production.

Unlike in Europe, the transition to the new emission norms has not been
smooth. Oil companies have asked for a deferment in supply of BS III fuel
and for those companies whose emission and durability of products would be
affected due to the use of lower grade of fuel, it is really a very taxing
time. Prices are on the upswing in the case of rubber, steel and fuel.

The auto component industry has been exposed to many risks of varying
intensity. The hardening of interest rate, tightening money supply, excise
duty hike, volatility in the price of raw materials & other inputs,
currency fluctuations, OEM's demand for price reduction, stiff competition
by the entry of Multinationals and their home country partnership,
upgradation in emission norms and Just In Time supplies are the major risks
and challenges faced by the Companies. It is forcing Companies to plan
operations effectively and produce quality components at lower costs.

The Company through continuous monitoring, timely action and control
measures works towards controlling the above risks.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company's internal control system has been designed & implemented,
taking into account of nature of business and size of operations, to
provide for:

* Accurate recording of transactions with internal checks and prompt
reporting.

* Adherence to applicable Accounting Standards and policies.

* Compliance with applicable statutes, policies, listing requirements,
management policies and procedures.

* Effective use of resources and safeguarding of assets.

The company, through its own Internal Audit Department, carries out
periodic audits to access the internal controls at all the processes and
functions. The observations arising out of audit are periodically reviewed
and compliances ensured. The summary of the Internal audit observations is
submitted to the Audit committee. The Audit Committee at their meetings
regularly review the financial, operating, internal audit & compliance
reports to improve performance. The heads of various monitoring / operating
cells are present for the Audit Committee meetings to answer queries from
the Audit Committee.

RISK MANAGEMENT

Risk is an integral part of the business process.

To enhance the risk management process, the company has mapped the risks. A
system has been formulated based on Balanced Score Card with various
appropriate measures and accountabilities to identify, assess, prioritise
and mitigate the risks. Reports generated from the system are monitored
regularly to ensure that appropriate corrective actions are taken.

FINANCE

During the year the company has not accepted / renewed any fixed deposit
from public. The total deposits from public outstanding as on 31st March,
2010 is NIL. 3 deposits amounting to Rs.0.065 million

matured but had not been claimed by the depositors as on that date.
Reminders have been sent to unclaimed deposit holders for suitable
instructions.

The Company undertook several steps to restructure its borrowings to keep a
control over the cost of borrowings. As the Company turned around and made
profits, ICRA upgraded the credit rating to 'LBBB-' (Previous year - 'LBB'
) for Working Capital fund based facilities & Term Loan facilities and 'A3'
(Previous year 'A4') for working capital non fund based facilities like
Letters of Credit and Buyers Credit for imports.

DIRECTORS

It is with deep regret the Board informs that Mr. L.G. Varadarajulu,
Promoter Director and long time Chairman of the Board till 2004, passed
away on the 19th of May 2010.

Mr. L.G. Varadarajulu played a leading role not only in establishment of
our Company, but also involved himself extensively in the formative years
to guide Mr. Vijay Mohan to grow the Company.

The Board places on record it's deep appreciation of the immense
contribution made by Late Mr. L.G. Varadarajulu and prays for his soul to
rest in peace.

Mr. R. Vidhya Shankar and Mr. M. Lakshminarayan Directors retire by
rotation at the ensuing Annual General Meeting and are eligible for
reappointment.

Mr. G. Soundararajan was inducted into the Board on 31st July 2009 to fill
up the vacancy due to the resignation of Dr. Kalyani Gandhi from the Board
of Directors. Mr. G. Soundararajan will hold office upto the ensuing Annual
General Meeting 2010. He is eligible for appointment.

Mr. C.N. Srivatsan has resigned from the Board effective 1st July 2009, due
to his personal commitments. The Board places on record it's warm
appreciation of the valuable contribution made by Mr. C.N. Srivatsan during
his association with the company.

Mr. K. Murali Mohan was inducted into the Board on 31st July 2009 to fill
up the vacancy due to the resignation of Mr. C.N. Srivatsan. Mr. K. Murali
Mohan will hold office upto the 39th Annual General Meeting 2011.

Denso Corporation nominated Mr. Mitsuhiko Masegi in place of Mr. Mitsuharu
Kato. Mr. Mitsuhiko Masegi has joined the Board of Directors on 30th
October 2009 as an additional director under section 260 of the Companies
Act, 1956. He vacates office on the date of the forthcoming 38th Annual
General Meeting and is eligible for appointment. The Board places on record
it's warm appreciation of the valuable contribution made by Mr. Mitsuharu
Kato during his association with the company.

Mr. Vijay Mohan has been reappointed as Chairman & Managing Director for a
period of 3 years with effect from 1st April 2010 to 31st March 2013,
subject to the shareholders approval at the ensuing 38th Annual General
Meeting 2010.

AUDITORS

The Board proposed M/s. Haribhakti & Co, Chartered Accountants as Statutory
Auditors of the company in place of retiring auditors M/s. Suri & Co. M/s.
Haribhakti & Co to hold office from the conclusion of this Annual General
Meeting until the conclusion of the next Annual General Meeting.

The Board of Directors places on record their warm appreciation of the
valuable contribution made by M/s. Suri & Co., Chartered Accountants during
their association with the company.

DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS

The company went through a stressful industrial relations situation.
External advisors are working with the management to rebuild relationship
with the workforce. These efforts are yielding positive results.

CORPORATE SOCIAL OBJECTIVES

Corporate Social Responsibility continues to assume an important role in
the activities of the Company. Afforestation, Water Management, Literacy
and Health continue to be the chosen areas of work by the Company and its
employees. An Eco-friendly gasifier crematorium constructed near Plant-I at
Perianaickenpalayam is maintained under Pricol Rural Development Programme
(PRDP).

CONSERVATION OF ENERGY

Though your Company is not a power intensive industry, the Company
continues its efforts to reduce energy usage by adopting various methods of
energy saving and conservation.

FOREIGN EXCHANGE EARNINGS AND OUTGO

During the year the Company's foreign exchange earnings were Rs.1049.436
million (Rs.1286.326 million in 2008-09). The revenue expenditure in
foreign currency was Rs.1805.301 million (Rs.1679.837 million in 2008-09)

and the capital expenditure was Rs.25.114 million (Rs.40.619 million in
2008-09).

STATUTORY STATEMENTS

As required by section 212 of the Companies Act, 1956 a statement showing
the Company's interest in the subsidiaries is enclosed to the Balance Sheet
of the Company.

The company has obtained the approval of the Ministry of Corporate Affairs,
New Delhi vide letter No.47/09/2010-CL III dated 25th March 2010 in terms
of Section 212(8) of the Companies Act, 1956 exempting the company from
attaching the balance sheet and profit and loss account of the subsidiaries
namely (1) English Tools and Castings Limited (2) Integral Investments
Limited and (3) PT Pricol Surya, Indonesia, along with the report of Board
of Directors and that of the auditors' thereon, with the company's accounts
for the year ended 31st March 2010.

Accordingly, the audited accounts of the subsidiary companies, (1) English
Tools and Castings Limited (2) Integral Investments Limited and (3) PT
Pricol Surya, Indonesia are not attached to the Balance Sheet of Pricol
Limited.

As directed by the Central Government, the accounts of the subsidiaries are
consolidated with the accounts of the company in accordance with Accounting
Standard 21 (AS 21) prescribed by The Institute of Chartered Accountants of
India and Listing Agreement prescribed by Securities Exchange Board of
India. The consolidated accounts duly audited by the statutory auditors and
the consolidated balance sheet information form part of the annual report.

The annual accounts, reports and other documents of the subsidiary
companies will be made available to the members and investors upon receipt
of a request from them.

The annual accounts of the subsidiary companies will be available at the
registered office of the company and at the respective subsidiary
companies. Any member or investor can inspect the same during the business
hours of any working day.

The statement showing the particulars of technology absorption pursuant to
section 217(1)(e) of the Companies Act, 1956, read with Companies
(Disclosure of Particulars in the Report of Board of Directors) Rules,
1988, is given in the annexure forming part of this report.

As required by the provisions of section 217(2A) of the Companies Act,
1956, read with Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of employees are set out in the annexure forming part
of this report.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 217(2AA) of the Companies Act,
1956, the Directors hereby confirm that:

a) In the preparation of annual accounts for the financial year ended 31st
March 2010, the applicable accounting standards have been followed;

b) They had selected such accounting policies and applied them consistently
and made judgements and estimates that were reasonable and prudent so as to
give a true and fair view of the state of affairs of the company at the end
of the financial year and of the profit of the company for the year under
review;

c) They had taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities and

d) They had prepared the annual accounts for the financial year ended 31st
March 2010, on a going concern basis.

CORPORATE GOVERNANCE

Your company reaffirms its commitment to the good corporate governance
practices. Pursuant to Clause 49 of the Listing Agreement with the Stock
Exchanges, Corporate Governance Report is annexed to Directors' Report and
Auditors' Certificate regarding compliance of the Corporate Governance is
made a part of this Annual Report.

CAUTIONARY STATEMENT

Management Discussion and Analysis forming part of this Report is in
compliance with Corporate Governance Standards incorporated in the listing
agreement with Stock Exchanges and such statements may be 'forwardlooking'
within the meaning of applicable securities laws and regulations. Actual
results could differ materially from those expressed or implied. Important
factors that could make a difference to the Company's operations include
economic conditions affecting demand / supply and price conditions in the
domestic and overseas markets in which the Company operates, changes in the
Government regulations, tax laws, other statutes and other incidental
factors.

ACKNOWLEDGEMENTS

The Board wish to thank Denso Corporation, Japan, Customers, Distributors,
Dealers, Suppliers, Shareholders, Bankers and Other Collaborators for their
continued support and co-operation during the year under review. The
Directors wish to place on record their appreciation to the employees for
their continued co-operation and commitment.

For and on behalf of the Board

Place: Coimbatore Vijay Mohan
DAte : 28th May 2010 Chairman & Managing Director

ANNEXURES TO DIRECTORS' REPORT

Statement pursuant to Section 217(1)(e) of the Companies Act, 1956, read
with the Companies (Disclosure of Particulars in the Report of Board of
Directors) Rules, 1988.

TECHNOLOGY ABSORPTION

I. Research and Development (R & D)

(i) Specific areas of R & D

The Company has two R & D centres, which are approved by the Department of
Scientific and Industrial Research (DSIR), Ministry of Science and
Technology, Government of India, New Delhi. Our R & D is engaged in several
areas including:

Designing and development of * Quality enhancement and feature
new products. improvements in existing products.

* Value Engineering and cost * Identify appropriate new technology
effective alternates development. areas continuously.

* Build domain expertise.

(ii) Benefits derived from R & D

New Products development and * Increasing localisation of inputs
tapping new markets. to save valuable foreign exchange.

* Meeting cost effectiveness * Registration of patents & designs.
in new products.

(iii) Future plan of action

* Work closely with customers to understand the requirements in terms of
features and reliability for a complete product solution.

* Nurture and Promote indigenous technology.

* Enhance the existing IPR base to higher levels.

* Focus on new technology products.

* Reduce time to market the product.

* Achieve price competitiveness with desired profit margin through target
pricing.

Expenditure on R & D: 2009-10
(Rs. Million)

Capital 69.630

Recurring 156.245

Total 225.875

R & D expenditure as a
percentage of sales 3.04%

II. Technology Absorption, Adaptation and Innovation Imported Technology

The Technology Imported during the year 2006-07 from Magneti Marelli
Sistemi Elettronici S.PA., Italy for manufacture of Instrument Cluster for
Renault - Mahindra's Logan Model Car has been fully absorbed. Supplies have
commenced from April 2007. Pricol is supplying to Domestic Market
requirement and South Africa Market for Logan Model.

The Technology imported during the year 2007-08 from Garant GmbH, Germany
for the manufacture of New Design Stepper Motor has been fully absorbed.
Assembly Line has been established. Mass production run is under progress.

The Technology imported during the year 2008-09 from Mashad Powder
Metallurgy Company, Iran to enhance the knowledge of manufacturing powder
metal and powder forged components and to implement the same at its own In
House Manufacturing Shop has been fully absorbed. The same will be fully
implemented in the years 2010-11 and 2011-12.